1.3 Business ownership

• Sole traders


  • Businesses owned by one person
  • May have a number of people working at the business, but ownership remains with one person
  • The most common form of business ownership in the UK
• Advantages of sole traders

  • Easy to set up
  • Finance required
  • Control
  • Profits
  • Financial information
• Disadvantages of sole traders

  • Unlimited liability
  • Illness
  • Shortage of capital
  • Hours of work
  • Skill shortage
  • Continuity
• Partnerships


  • Very common in certain industries like solicitors, accountants and dentists
  • Must have at least two partners, though they may not have an equal share
• Advantages of partnerships


  • Capital
  • Easy to set up
  • More skills in the business
  • Workload is shared
  • Financial information is private
• Disadvantages of partnerships


  • Profit is shared
  • Unlimited liability
  • Shortage of capital
  • Slower decision-making
  • Continuity
• Deed of partnership


  A document that sets out information on the way the business operates, the role of each partner, how profits and losses will be shared, and details of how much capital each partner has contributed
• Sleeping partners


  Partners who provide capital for the business but take no part in running it, with limited liability for any losses
• Limited liability partnerships (LLP)


  A type of partnership where the partners' liability for the debts of the business is limited to the amount of money they put into the business
• Advantages of private limited companies

  • Limited liability
  • Continuity
  • Can raise money more easily
  • Control over share sale
• Disadvantages of private limited companies


  • Financial information available to the public
  • Administration
  • Sale of shares is restricted
  • Dividends
• Some thought needs to be put into setting up a private limited company
• There are many forms to complete, particularly financial information, which must be sent to the Registrar of Companies. Failure to submit the necessary forms on time will result in a fine.
• Private limited company


  Unable to sell shares to the general public, which will restrict the amount of capital that can be raised
• Dividends


  Amounts of money paid to shareholders from the profits of the business
• Shareholders who have put money into a business may expect a dividend each year


  When the directors who run the business may want to use profit to expand
• Public limited company (plc)

  Can sell its shares to the general public - in Britain that means selling the shares through the Stock Exchange in London
• Advantages of public limited companies

  • Ability to raise large amounts of capital
  • Easier to borrow money
  • Limited Liability for shareholders
• Disadvantages of public limited companies

  • Possibility of takeover
  • Cost of setting up and operating
  • Problems of size
  • Financial information available to the public
• As accounts in a plc must be published, competitors have vital information on whether to try to take over the business
• Start-ups will begin as a sole trader, partnership or private limited company. Public limited companies are not used for start-ups.
• Considerations for start-ups


  • Amount of money required
  • Limited liability can be useful
• Sole trading would be a better choice for a single person starting a simple one-person business, as private limited companies are more complex to set up and operate
• Once a business becomes established, it may change its ownership, especially if it aims to grow
• Growth in a business often requires extra capital


  If the business is a private limited company, it could change to a public limited company to raise the required capital
• The biggest businesses are almost always plcs, as they require very large amounts of capital to operate and this only comes from being able to sell shares through the Stock Exchange
• Changing from a private to a public limited company will mean that shareholders lose the control they have on the sale of shares
• Types of business ownership

  • Sole trader
  • Partnership
  • Private limited company
  • Public limited company
• Private limited companies are more expensive to set up and operate than a sole trader or partnership
• A public limited company is much more expensive than a private limited company to set up and operate
• A new business would not start as a public limited company
• Limited liability


  The responsibility for the debts of a business is limited to the amount invested by a shareholder
• Unlimited liability


  The responsibility for all the debts of a business rests with the owners of the business
• Forms of business ownership


  • Sole trader
  • Partnership
  • Private limited company
  • Public limited company
• Deed of partnership


  A document setting out the operations of the partnership, including amount of capital to be invested and how profits will be shared
• Capital


  Money raised to start or develop a business
• Sleeping partner


  A partner who invests in a partnership but has no part in the running of the business
• Limited liability partnerships


  Part partnership part limited company. Owners are members, not partners. They have limited liability and have to make their finances available to the public
• Shareholders


  The owners of a private or public limited company
• Dividend


  The money paid to a shareholder from the profits of a limited company. This is the reward for the shareholder taking a risk by investing money in the company